Japan chemical industry needs more capacity cuts-M’bishi Chemical chairman

TOKYO: Japan´s chemical industry will enjoy robust profits for another two years due to low oil prices, but needs to cut more capacity ahead of increased competition from cheap U.S. and Chinese products, Mitsubishi Chemical Holdings chairman said.

Japanese chemical firms are predicting strong earnings for the year to March 2016, with top-ranked Mitsubishi forecasting a record operating profit, on the back of higher margins for turning oil-based naphtha into ethylene as low oil prices cut feedstock costs.

Ethylene is a basic feedstock for petrochemicals that are processed into products such as plastics.

"We expect oil prices to remain between $30 and $40 for the next two years," Yoshimitsu Kobayashi, chairman of Mitsubishi Chemical Holdings, told Reuters in an interview.

"Japanese chemical firms can maintain solid profits for the next two years, but cheap chemical products from the United States and China are expected to come to Asia from 2018," he said, pointing to products made from U.S. shale gas and Chinese coal.

"We need to take measures to be ready for that."

Under one scenario, Japan´s annual ethylene output could fall to a low as 4.5 million tonnes by around 2020 from the current 6.5 million tonnes, given stiff competition in its traditional export markets in Asia, Kobayashi said.

Despite a series of petrochemical plant closures, including Sumitomo Chemical´s shutdown of a naphtha cracker this year and Asahi Kasei´s plan to close a cracker next year, the country still suffered from overcapacity, he said.

"Our company has already shut two naphtha crackers out of four and plans to unify another with Asahi Kas's plant in 2016. We don´t have to cut capacity any more," he said. "I hope other companies will come up with wise solutions."

Earlier this month, chemical titans DuPont and Dow Chemical Co agreed to combine in an all-stock merger valued at $130 billion, then split into three businesses focused along product lines, such as agriculture.

Kobayashi, also the head of the Japan Chemical Industry Association and a major Japanese business lobby Keizai Doyukai, said Japanese firms needed to come up with their own forms of consolidation in order to compete with global giants.

Unlike Western rivals, Japanese chemical makers often have wide-ranging business portfolios including pharmaceuticals, high functional materials and petrochemical commodities.  "Japan´s innovation should come from horizontal linkage," Kobayashi said, such as combining data or new technologies with existing products to create something new.

"We need to think about wiser formulas for consolidation to create synergies, rather than just merging within the industry.